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US Rate Hike to Impact (P)GCC Growth

US Rate Hike to Impact (P)GCC Growth

The recent interest rate hike by the US Federal Reserve and potential guidance of three to four hikes in 2018 has adverse consequences for private sector credit growth, economic diversification efforts and economic growth of (Persian) Gulf Cooperation Council countries in the year ahead and beyond, Reuters reported. Economists expect that, with the growing optimism on US jobs and wage growth, the Fed is likely to raise policy rates four times in 2018 compared to the earlier forecast of three hikes. However, economists predict these are likely to have unintended consequences on countries that have dollar-pegged currencies like in the (P)GCC (Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain, and Oman). “The current divergent economic cycles between the US and the (P)GCC along with lower oil prices imply different fiscal and monetary policy needs. However, monetary policy in the (P)GCC is determined by the exchange rate peg to the US dollar,” said Boban Markovic, research analyst at the Institute of International Finance, the Washington headquartered association of leading global banks and financial institutions.